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Wednesday, May 29, 2013

Bill Henderson Is Burning Through His Reputational Capital

As the person who brought the bimodal salary distribution to the legal masses, Bill Henderson has earned a substantial amount of respect from academics, practicing attorneys, and law students. His early warnings about the dire job market and its effect on law schools, students, and recent alums have proven correct. His academic research on the future of law firms, the plight of junior associates, and the use of LSATs scores has moved the ball forward in these areas and has often challenged the conventional wisdom. Henderson is not afraid of being a prophet, even when the people reject the prophecy.

This year, however, Henderson's tone has begun to change. It started in January, with news of the unprecedented drop in law school applications. In a New York Times article about the drop, Henderson and others reflected on its causes: a poor job market, big jumps in tuition, perhaps even pedagogical failures. At the end of the article, however, came this fairly specific prediction from Henderson: "There are going to be massive layoffs in law schools this fall. We won’t have the bodies we need to meet the payroll.” That line became the takeway message for the ABA Bar Journal and otherblogs.

I want to leave to the side -- way to the side -- the normative question of whether law schools should be undergoing massive layoffs. Henderson's was not a normative point -- it was a descriptive one. For someone who made his bones as an empiricist, Henderson's claim seemed to come out of left field. Yes, law school applications were down to historically low levels, and schools were (and still are) offering substantial tuition discounts in order to maintain an incoming class with the right qualifications. But I have not seen anything about massive layoffs, other than the Vermont Law School story that was itself cited in the NYT article. Hastings cut a significant number of staff positions, but that was spring 2012. And yes, there is still plenty of time for Henderson's prediction to come true. But one would have expected that, given that the writing is on the wall this point, some layoffs would have already started, if there were massive ones to come. Professiorial hiring is certainly down significantly, but it is not non-existent. As my own institution has experienced, good folks are still getting lateral offers.

Now it seems that Henderson has taken a "double-down" strategy to his predictions of institutional collapse. In an op-ed published by the National Law Journal, he argues that massive layoffs would not be nearly enough -- instead, schools need to close. Framing his piece as a "letter" to a hypothetical university president, Henderson essentially argues that law schools have two choices: close or adopt a radical new pedagogical agenda. Here he is at length:

In summary, there is significant excess capacity in the legal education system. So the dilemma facing a large proportion of university presidents, such as yourself, is the need to choose one of two difficult paths. You can either tackle head-on the difficult restructuring issues facing your law school, or alternatively you can cut your losses today and close the law school rather than risk another devastating shortfall as your school edges toward open enrollment and disastrous future problems with bar passage.

One key factor to consider is the employment prospects of your current students. Since the American Bar Association began tracking more granular information, we learned that some regional law schools — such as Alabama, Kentucky, West Virginia and Louisiana State — enjoy relatively strong placement records (greater than 80 percent in full-time, long-term jobs that utilize the law degree) that are on par with the national law schools, albeit these legal jobs tend to be in Alabama, Kentucky, West Virginia and Louisiana, and few jobs pay six-figure salaries. In contrast, many law schools are feeding highly saturated regional markets. For example, for law schools located in California, the average rate of bar passage-required employment is 48.9 percent, with several schools below 30 percent. Law schools located in Michigan are in worse shape, placing only 42.3 percent of their graduates in bar passage-required jobs.

Because you are in one of several jurisdictions with [employment] numbers similar to California and Michigan, closure may be the best long-term course for the university. One step short of closure may be rolling the law school into the College of Arts and Sciences under a newly created law department that can service the undergraduate population. Faculty teaching loads and salaries can be rationalized accordingly. This would permit a dramatically pared down J.D. program that could one day be rehabilitated.

The one militating factor is your faculty's willingness to restructure its curriculum and mindset. . . . The first hurdle in restructuring is the faculty itself embracing the need for change. The second hurdle is your own willingness to expand the scope of academic productivity. The most successful law schools in the future will be closely engaged with employers seeking to adapt to a rapidly changing industry. These same schools will also need to effectively collaborate with professionals from other disciplines, including systems engineering, information technology, finance, marketing and project management. Law faculties locked into the traditional positional competition over published legal scholarship are going to be unable to meet these heightened job demands. As the university president, you need to provide the law faculty with the latitude to adapt.

Frankly, saving your law school is going to require courage and leadership. Brace yourself for vilification. Even if you are successful, your efforts and intentions will not be appreciated for years to come. I do not envy your choices. I certainly wish you the best of luck — you will need it.

These recommendations come at the end of Henderson's case that law schools are in really bad shape. He frames his argument using emotional terms -- "brutal facts," tradeoffs that are "extraordinarily difficult and painful," and "million-dollar shortfalls" with "no end in sight." In some respects, Henderson actually understates his case: he focuses only on declining enrollments and does not discuss the need to bring down tuition as well. There are undoubtedly huge changes in applicant pools -- many would call them corrections -- and law schools and universities have to deal with these changes. But why closure?

Henderson's analysis offers strikingly little insight into the actual market structure of law schools and universities. The decision to close should not be based simply on whether one is in Alabama or California. Law schools have far-ranging differences on a variety of axes: employment outcomes, tuition, applications, margin provided to university, fixed costs, marginal costs, endowments, etc. To say that a law school should close because it is in California, Michigan, or a jurisdiction with "similar numbers" is frankly ridiculous.

Looking at Henderson's hypothetical only adds to the confusion. He does not limit the fictional "President Smith" to whom his letter is addressed to any particular type of university. The only specification is that enrollment declined by 15% producing a $1.5 million shortfall. Henderson doesn't explain those numbers, but let's assume that the school dropped about 40 students from a prior enrollment of 270 at a tuition just less than $40,000. Why the drop in enrollment? Is it because the school wants to preserve its incoming qualifications at traditionally strong levels, or because the school accepted 100% of its applicants and could take no more? What is the margin that the law school has previously provided to the university? What is the endowment, for both the law school and the university? Is tuition too high? And that's before considering the variety of cost cutting measures that could be implemented, including the aforementioned massive layoffs. Henderson ignores all of those issues. No, it's simply enough that the school cut 15% of its incoming class and is located in California, Michigan, or similar jurisdiction. Illinois has a tough legal market -- goodbye, Northwestern Law?

Am I saying that law schools don't have to cut costs? No! In fact, back in the fall I wrote a whole series about how law schools could think about cutting costs (here, here, here, here, and here). My point there, as here, is that these issues may be caused by national trends, but the local impacts and school responses are very context dependent. Sure, it may in fact be a good idea for some schools to close, but I'm in no position to judge that. And I think the number is smaller than Henderson seems to imply, because he says (in effect) that at least half the schools should close.

Henderson doesn't seem to be interested in other solutions. He instead is generating an idea--a meme--that the "rational" university response is to shut down law schools. He doesn't discuss the underlying economics -- he's engendering panic. Chaos is key to Henderson's ultimate goal, which is reshaping the pedagogy of legal education. He talks about his proposal here -- it's an interesting one, and it has intuitive as well as empirical support. But it is one model among many. Henderson's problem is that in order for his reform to work, he needs massive buy-in from faculties who would be willing to convert to a new approach. (Part of that buy-in, it should be noted, is throwing scholarship out the window: or, in his words: "Law faculties locked into the traditional positional competition over published legal scholarship are going to be unable to meet these heightened job demands.") Given the difficulty of that task, Henderson is essentially pulling an end-run around faculties to other decison-makers. In his "letter," Henderson appeals to those dismayed university presidents who are facing sharp declines in law school revenue. According to Henderson, these presidents should give law faculties an ultimatum: adopt Bill's new approach or we'll shut you down.

In a legal marketplace increasingly focused on results and value, the best law schools will be those that understand — and help solve — the challenges facing legal employers.

Lawyer Metrics offers a powerful tool to connect with legal employers, gather data, enhance curricula and measure outcomes. By tapping into the expertise of faculty, prominent alumni and recent law school graduates, we build a competency model that strengthens relationships and gains the buy-in of all stakeholders.

Is Lawyer Metrics looking to work with law schools on Henderson's pedagogical reforms, such as "closely engag[ing] with employers seeking to adapt to a rapidly changing industry"? I don't know. But it seems like Lawyer Metrics would be a natural place to start for university presidents seeking to reform their law schools in the ways that Henderson recommends.

Henderson, like other reformers ("rebels"), has a strong perspective not only on the problems faced by legal education but also on the proper solutions. His solution to the law school crisis -- one that involves a substantial and largely unexplored change to legal pedagogy -- may be the answer to the field's longer-term problems. But I fear that instead of reporting on the crisis, Henderson is now using it to try to leverage a few shocked university presidents into adopting his methods. In the process of drumming up panic with wild-eyed claims and the specter of closures, Henderson risks squandering a pile of reputational capital that only a few legal academics have managed to achieve in the first place.

Comments

Oh, come on. No school is going to open its books to Bill Henderson just so he can begin drafting his autopsy notes on that school for the New York Times.

On the other hand, the coverage of the issue implies that law schools tend to live from semester to semester on its income from whatever sources; if you have something that suggests otherwise, I promise to read it with an open mind. In some cases, it may be that students represent a minority of a law school's income because of state support, endowments or something else. However, the doubling in sticker price over the last ten years suggests that the students' contributions are not only necessary for most schools, but should ideally increase at a rate higher than inflation to maintain the status quo. Now there are many fewer applicants than in the previous decade; those fewer applicants are being told over and over again to press their advantage in demanding tuition reductions from their law schools, regardless of what numbers they have; and there is no reason why this skepticism of attending at sticker price should change in the near term, absent a miraculous recovery in hiring and starting salaries.

If you can tell me why a smaller applicant pool demanding to pay less for your product over an indefinite term is not a near-term problem for almost every law school, then I might accept your thesis. As far as I can tell from the links, Henderson has done nothing more than make the obvious plain in a Tone that Some Find Disagreeable.

Posted by: Morse Code for J | May 29, 2013 12:49:14 PM

I am interested in this sentence from the part of Bill's op-ed that Matt did not quote:
"One step short of closure may be rolling the law school into the College of Arts and Sciences under a newly created law department that can service the undergraduate population."

If one of the problems Bill notes is schools too focused on scholarship and less on practice-ready things, how is folding law school into a liberal arts curriculum filled with history professor Ph.D's writing for journals going to help?

Posted by: JJJJ | May 29, 2013 12:57:38 PM

Layoffs have begun. They just haven't been widely publicized yet.

Posted by: Fred Yerks | May 29, 2013 1:05:20 PM

There is significant excess capacity amongst college graduates in this country, with a large percentage of graduates not finding B.A. or B.S. required jobs within 9 months of their graduation. The advice to the University President should be to shut the whole place down.

Posted by: BigAl | May 29, 2013 1:51:19 PM

Let's face it: you don't care whether Bill Henderson is squandering his reputational capital, you want him to stop delivering a message you don't like. For the same reason you insinuate that his criticisms are profit-motivated. Just engage the guy on the facts. There's certainly room for debate.

Posted by: Doug Richmond | May 29, 2013 1:56:52 PM

I thought I was engaging him on the facts. The facts that he cites -- 15% drop in enrollment, $1.5 million shortfall, and a legal market such as California or Michigan -- do not justify a law school shutting its doors. Should a law school that is enrolling 100% of its applicants, has a 30% bar passage rate, and charges $45,000 a year close its doors? Well, perhaps it should instead cut its enrollment by half, cut tuition significantly, and cut its costs by two-thirds. The underlying problems are (1) enrollments are too high, and (2) tuition is too high. There are a lot of ways to address that problem -- closure is just one.

Posted by: Matt Bodie | May 29, 2013 2:27:15 PM

Doug Richmond nails it. The post ostensibly distinguishes between sober rhetoric and over-the-top rhetoric but with unintentional irony the author finishes in a flurry of purple prose,unsupported, dark insinuations, and an implied threat of ostracism. The post reveals a lot about the author but nothing about the subject. (As a friend of Bill, my advice is that if you're curious about what he's up to, shoot him an email or pick up the phone and call him. I've never worked with a more open, charitable, and generous colleague.)

As for predictions, hey, we're all just making predictions. One professor has been quoted as saying that as many as ten schools could close. I wouldn't go nearly that high but I don't accuse him of bad faith.

As long as we're making predictions, I've been predicting that schools have lots of ways to defer the hard choices for at least one more cycle. They will protect the tenured faculty by firing other people (e.g., Hastings), by cutting costs on things other than tenured profs (e.g., Catholic announced university-wide departmental cuts of 30% because of falling law school revenues), stealth lay-offs, slower hiring of tenure track profs (already happening, right?), buy-outs of senior deadwood profs (I've heard rumors and one dean confirmed it for one school, who knows?), milking foreign students, enrolling JD students who have very low odds of passing the bar, etc. It wouldn't surprise me if the schools wait to see how things go next cycle before considering cuts that would affect tenured faculty.

Posted by: John Steele | May 29, 2013 2:51:59 PM

Matt,

You are wrong to assert that Henderson "does not limit the fictional "President Smith" to whom his letter is addressed to any particular type of university."

Henderson writes:

"So the dilemma facing a large proportion of university presidents, such as yourself, is the need to choose one of two difficult paths. You can either tackle head-on the difficult restructuring issues facing your law school, or alternatively you can cut your losses today and close the law school rather than risk another devastating shortfall as your school edges toward open enrollment and disastrous future problems with bar passage."

This is clearly directed at a limited class of law schools, though he does not name them. Northwestern--to take your example--obviously is not edging toward open enrollment. But a fair number of schools are in trouble. My guess based upon last year's numbers is that about two dozen schools will accept more than 70% of their applicants for the entering class of 2013. Several dozen law schools will enroll a significant percentage of students with LSAT scores in the 140s--which does raise concerns about bar pass rates going forward.

I think you understate the economic challenge that many law schools currently face (seven figure structural deficits in coming years), but I agree with you that closing is just one option, and highly unlikely to happen.

Your assertion that Henderson (who I barely know) is purposely creating "chaos" to advance his personal economic interest is unnecessary to your argument, and is a total stretch.

Posted by: Brian Tamanaha | May 29, 2013 3:13:02 PM

Thank you for this careful takedown. But I have to say, as someone who's followed the "scamlaw" crowd for some time, that the reputational capital was ebbing long ago.

Most of them have one guiding principle, shared by hard-right governors like Rick Perry and Scott Walker: slash the pay of pointy-headed intellectuals. Mention that IBR is a drop in the bucket of US budget issues, and they fulminate about rent-seeking. Try to point out the incredible cuts in state funding to higher education since 2008 (not to mention before then), and they rage about professors not teaching enough classes. Ask them if they've decided to donate some of their own pay to help the people they express concern about, and they treat it as a personal attack and say it would not mean anything unless everyone did it.

The bottom line here is that the scamlaw crowd is irrelevant: the zero-sum competition of USNews LSAT/GPA-scholarships is already reducing effective tuition and costs of attendance. The only way they can remain in the news is by making apocalyptic predictions. And since that appears to be the main motivation (aside from some ungrounded nihilism about the value of scholarship and some justified worries about teaching), we shouldn't be surprised to see many more prophecies of doom. The scamlaw crowd just hopes they will be self-fulfilling.

Posted by: Anon | May 29, 2013 3:18:31 PM

Brian:

Thanks for these points. You may be right that Bill has some hypothetical smaller group of law schools at which he is aiming, but he only makes that one passing reference to "edg[ing] toward open enrollment." What constitutes edging? Otherwise, his criteria are: 15% cut, $1.5 million shortfall, and legal market like California or Michigan. Do you endorse those criteria? If there are other criteria, like 90% acceptance rates or 30% bar passage or 50% legal employment or whatever, he should name them. It is in his rhetorical interest to leave the group purposely vaguer and broader, because he is trying to gin up panic.

And I stand by the chaos point. Obviously a lot of schools are facing much tougher financial markets. But why advocate closure? Why not advocate those massive layoffs he predicted? I think his proposal is telling: either close or adopt my new system of legal pedagogy. That's his message to these hypothetical university presidents.

I do not think I do, and in any event do not intend, to understate the economic challenges facing law schools. As I said, Henderson understates them, in my view, because he never discusses the need to lower tuition. But Henderson's proposal that all law schools that meet his criteria ($1.5 mil, 15%, CA or MI) should consider closing muddies the issues, rather than clarifying them.

One last point: let's assume a hypothetical law school that is seriously considering closing its doors because it cannot find jobs for its graduates and cannot find qualified applicants to come in through the door. Henderson says that this law school need not close if it adopts his pedagogical reforms. Really? Is his approach really the answer to this law school's prayers? He raises the threat of annihilation with one hand, then offers the prospect of salvation with the other -- if only the university and faculty follow the gospel of Bill. This seems to be the crux of his article. That's why I don't think my point is a stretch.

In this piece, I estimate the total federal investment in legal education by school year. My estimates are:

2011-12: $4.95 billion
2012-13: $4.88 billion
2013-14*: $4.47 billion

*projected

I do not know if Bill has run these calculations himself, but I suspect at minimum he has an intuitive idea of how impactful a $500 million loss over two years is to institutions that have extraordinarily high fixed costs.

The year after is going to be the worst in my opinion (2014-15). Average price paid will continue to decline, and unless 1L enrollments make a double-digit climb that year, total enrollment will be down another 5k-10k. (I project enrollment next year is 125300, fwiw.)

As you point out, there's a huge need for more affordable tuition, especially for the bottom quarter of the class who doesn't receive a massive discount. Saying "forget this" might be the easier option for a lot of universities, much like what happened at a handful of very solid (reputationally) dental schools in the 80s.

I'm not arguing with any of that! I'm not even saying that schools shouldn't or won't close! I'm just making two points: (1) Bill's criteria for when a school should close are woefully overbroad, and (2) his motive for making them overbroad is to sell schools on his pedagogical reforms.

I have not checked Kyle's figures on the federal investment in education, but I do not think that concept matches up very exactly with revenue for law schools. Educational loans often include borrowing for living expenses that do not provide revenue to the law schools. Some students do not borrow at all. Parents may contribute less when the stock market is down, as it was, say, in 2009, but more when it is up like today. State subsidies for the public schools also provide a form of revenue to the schools which may vary from year to year which would not be reflected in federal borrowing. A central university's assessment on law school revenue may also vary from year to year.

Posted by: Anon3 | May 29, 2013 6:44:36 PM

Brian, responding to the claim that Henderson "does not limit the fictional "President Smith" to whom his letter is addressed to any particular type of university," says: "This is clearly directed at a limited class of law schools, though he does not name them."

Not only does he not name them, he isn't at all clear. The sentence both of you quote is this: "So the dilemma facing A LARGER PROPORTION OF UNIVERSITY PRESIDENTS, SUCH AS YOURSELF, is the need to choose one of two difficult paths. You can either tackle head-on the difficult restructuring issues facing your law school, or alternatively you can cut your losses today and close the law school rather than risk another devastating shortfall as your school edges toward open enrollment and disastrous future problems with bar passage."

One possibility is that he doesn't know how to use commas, but that doesn't seem likely. Another is that Brian is restricting himself to the subtarget of schools likely to close, which Henderson does later particularize a bit, but that's not all Matt is talking about, so it's beside the point. The fairer reading is that Henderson is addressing -- as he says, explicitly, before beginning his mock letter -- a university president who has distinguished himself by seeking Henderson's advice, not a narrow subclass. This grabs everyone's attention, but eventually people realize that the urgency and severity of reforms are well differentiated, and not just with respect to closure.

I may be wrong, but if I am, it can hardly be said that he is "clear."

Posted by: Ani | May 29, 2013 7:15:33 PM

Sorry Matt, I didn't mean to imply you would argue with that. I would, however, argue that you've focused a little much on Bill (point 2) instead of his arguments. That was my motivation in pointing you to the federal investment research. The doomsday scenario is realistic and the alternatives to closure for some schools will be few and far between. Either way, I don't find his motive interesting here (whether or not you're right about it), but perhaps I am biased because Bill was one of the very first people Patrick and I looked to when developing LST.

To answer your question, no I do not think so, but neither do I think you've framed it fairly. I think they should move to my model, the modular law school :) http://ssrn.com/abstract=2188668

Here is the frame I think Bill used. I don't think he suggests that his new model is necessary, but that it would help. On that point I don't agree, but I'll explain that below.

(1) Law School X faces a budget crisis impacting Parent University X because the law school has to spend much more than it will take in.
(2) Parent University X asks Bill for advice on what to do with Law School X.
(3) Bill says:
(a) Minor changes are not enough, which is all most schools are doing now (or at least all they publicly admit to doing)
(b) Things are not looking better because the profession is changing (and has changed) and students won't get the outcomes they want or need to pay what they're asked to pay to keep the current model a going concern.
(c) So, major changes are necessary one way or another.
(4) Bill then narrows the scope of schools he could be talking about from "school facing budget issues" to "school facing budget issues with really, really bad employment outcomes like those in CA or MI."
(5) Bill then says that closure could be a sensible solution.
(a) Unstated, here, is that closure is an attractive option for a university that wants out of long-term faculty contracts.
(b) Related is that providing those same faculty with positions in an undergraduate law degree, with more students to be responsible for, saves some jobs and shifts some the law school budget burdens to a larger undergraduate population.
(6) Only now does he suggest a quasi-alternative: refocus the law school mission and manner (implicitly: his model or some much like it).

So again, I don't think he's framed a choice where it's the Henderson model or perish. But it shouldn't surprise anyone that he's suggesting that one possible solution is a solution he's created. Perhaps I am naive though; I tend to avoid malicious intent until I'm overwhelmed by evidence. Call me an idealist.

But that I don't see him painting a binary choice aside, I find his final point somewhat of a non-sequiter unless he means that making the law school product better will increase the ability to attract enough people to cover the budget. My issue then (like yours, I think) is that it's missing the fairness component of affordable (thus accessible) education. I don't doubt that his blueprint would make the product better, silencing many critics of legal education and preparing law schools for the new legal profession. I just don't see that as the only change needed. Neither do I see it as the correct lens for which we should be analyzing the change. Incidentally, I have a piece in the ABA Journal either tonight or tomorrow covering just that.

Anon3: Please do dive into my figures. I'm happy to adjust the calculations if I've made any unwarranted or over/understated assumptions.

You're right that the total federal investment does not match perfectly with law school revenue, but I don't think I said that it did. We actually cannot tell a priori whether schools lose more or less than ~$500 million from the decreased federal investment. It could be either.

Some schools have lowered cost of living estimates and increased tuition & fees to net zero change in total cost of attendance. Those schools could easily see more revenue, even though the total federal investment would go down. But as I say in the post, from the federal govt's perspective, all of those dollars are necessary to making educated people (in this case law graduates).

Likewise the total federal investment does not account for all revenue the school will receive, as you point out. But again that wasn't what I had to work with and the federal investment numbers still can make a solid point. Personally, I think the overall losses are far worse than a half a billion dollars, but without data I cannot call that anything other than intuition.

Some losses have been covered by central universities. I am amazed at how many law school deans told me both that they are running deficits and how much those deficits were. But how long that will last is an interesting question and will depend on university politics. Maybe it's the chance for the other liberal arts professors to stick it to the law professors who are paid substantially more? Maybe the law school is draining the university's reputation and not worth the subsidy? Or perhaps, as it appears at La Verne, the university president will say (in spite of opposition from other deans at the university) that the law school mission is too important to close down?

Tamanaha says the link between Henderson and his consulting firm is not relevant.

But the firm offers services to law schools in the form of a "competency model" that is clearly linked to his views on the need to restructure law schools.

As the firm's website says:

"Law Schools

In a legal marketplace increasingly focused on results and value, the best law schools will be those that understand — and help solve — the challenges facing legal employers.

"Lawyer Metrics offers a powerful tool to connect with legal employers, gather data, enhance curricula and measure outcomes. By tapping into the expertise of faculty, prominent alumni and recent law school graduates, we build a competency model that strengthens relationships and gains the buy-in of all stakeholders."

Did NLJ editors know of the relationship? It should have been disclosed.

While we are at it, just for the record, does Tamanaha have any relationships with similar firms or speak with plaintiffs lawyers suing law firms as LST has admitted it does?

Posted by: anon | May 29, 2013 11:46:32 PM

anon, you say "as LST has admitted it does" in such a way that it ought to be taken for granted that it be disclosed by us. Should I also disclose every law school dean or administrator I've spoken to? Provided advice to? Or only if the school is among those sued by past students? I think LST's mission is pretty clear (transparent!) and the reasons I talk to all legal education stakeholders should be pretty obvious: LST wants to influence legal education.

I always laugh at the idea, when the random commenter brings LST's "relationship" with the plaintiffs' attorneys up every few months. I've spent at least 100 times the amount of time with law school deans as I have with either set of plaintiffs' attorneys. Probable a few hundred times. The whole notion that I wouldn't speak to either side is funny considering their suits are about something I developed a pretty unique expertise in.

I think most of the commenters here are missing the forest through the trees. The ultimate variable here is this: can law schools keep getting enough capital to operate? The bulk of the capital, of course, comes from student loans. I don't think that is in much contention.

Where do student loans come from? At the moment, almost exclusively from the federal government, in the form of Stafford and GradPLUS loans. Staffords have long had a $20.5k annual lending cap, which is now insufficient to get through most law schools, public or private, and a small fraction of the annual COA of the most expensive schools. GradPLUS loans are used to fill the gap.

And... I think that is the Achilles Heel. You see, people are starting to realize that GradPLUS loans enable absurd prices. When I say people, I mean Simpson & Bowles. And the Gates Foundation. And the Lumina Foundation.* All of whom have publicly advocated for the repeal of GradPLUS loans. The Gates Foundation, if I am not mistaken, specifically stated that the combination of unlimited GradPLUS loans plus the existence of IBR/PAYE is leading to "imprudent" pricing by law and other professional schools. That oleaginous line that some law schools deploy: "Don't worry about the high cost; just borrow the money and in the worst case scenario, you can just go on IBR/PAYE afterwards" has not been overlooked, it seems.

So, what would happen in the absence of GradPLUS? Would private lenders still be willing to lend upwards of $180k per student (the nominal difference between Stafford lending caps and the COA of Brooklyn Law School), knowing what we do in this day and age about law school outcomes (and inferences to graduates' salaries)? How desperate are they to restart the SLABS market? What if the DOE refused to guarantee those private loans? What if the lenders wanted the law schools to guarantee the loans? What if they simply refused to lend? Heck, what if they did lend but didn't extend repayment flexibility, leading us back to the days of $2000/month minimum payments like those under which the 2003 through 2008 grads toil? Would prospective law students balk at such a prospect?

Yes, any decision to repeal any manner of student loan will likely be buffeted by years of deliberation and GAO reports and whatnot. But that does not preclude it from happening. The sheer fact that the two mega-foundations in the higher ed sphere want it makes it a real possibility. And it would do more damage to more schools more quickly than any remotely possible drop in applicants. This isn't a navel-gazing theory, ladies and gentlemen - organizations and individuals with real seats at the table want this to happen. Plan accordingly.

*I know that most people don't read the Chronicle of Higher Education, Inside Higher Ed, and other college policy sites as avidly as I do, so let me say this: what Gates and Lumina want, they tend to get, not just because they each possess billions of dollars to throw around, but because their employees and leaders enjoy a very cushy revolving door with the Department of Education. It's ironic, really - one foundation was started by a college dropout, the other by a for-profit student lender, but we live in strange times.

Second, although I don't object to Matt's post or subsequent comments as much as some seem to, I wouldn't have speculated about his motives as Matt does here. Why do so in the absence of more concrete evidence? I'm thinking here especially about the line in Matt's comment in which he says that Bill's "motive for making [allegedly overbroad statements] is to sell schools on his pedagogical reforms." Since you don't know that, it seems unwise to me to state it so confidently.

But, and this is my third point, avoiding unduly confident statements about someone else's motive is not the same thing as avoiding the issue of potential conflicts of interest at all. Two or three comments seem to suggest Matt should not have raised the issue of Bill's role in a legal education consultancy firm at all. That seems incorrect--and, given his immersion in social science work, I see no reason to think that Prof. Henderson would disagree with me. The legal academy lags far behind the rest of the academy in demanding stringent conflict of interest disclosures. One need not question the motives of the individual involved to think that's worth noting and addressing. Nor, indeed, am I questioning Prof. Henderson's motives or his work; I don't know enough about the kinds of disclosures he's made, which for all I know would satisfy all the requirements of disclosures in other fields. But it is neither off-topic nor especially rude to make note of the financial interests of scholars. I note, finally, that Prof. Henderson, as far as I can tell, doesn't address that aspect of the discussion in his response.

Posted by: Paul Horwitz | May 30, 2013 9:20:08 AM

Matt, your critique is misplaced because you are misapplying the suggestion Bill makes. As you stated above, "So let me ask you: do you think schools will be able to escape the crushing financial realities that you highlight above simply by moving to Bill's new model for law schools..."

In the world of competition and consulting, it is to be presumed that not every law school will choose the same strategies to remain (or grow) in the given market. Your doubt as to whether Bill's suggestion is good advice is based on the premise that all schools will jump on board with it and there will be nothing to distinguish one school from the other in this regard.

This is not the case. Bill's point is that some schools will adapt while others fail. He is suggesting ways in which they adapt, but many will not follow that advice. If he is right, those will fail (or not do as well), while the ones which adapted will do better.

Your critique is a common mistake. When offering advice to young attorneys on how to start a law practice, many of them point to macro-issues and suggest my advice isn't going to help anyone because it is obvious that if everyone practiced my advice, there would still be too many lawyers. It makes no sense because the premise of all advice concerning how to develop an edge is that, first, not everyone will follow the advice.

Posted by: Jeff Matthews | May 30, 2013 9:39:46 AM

I guess "Anon" does not see the irony of a person (presumably a law professor) issuing a "for the record" demand for information while hiding behind anonymity.

"Just for the record," not only have I never consulted, I have turned down requests to consult (including from a university administration facing the precise scenario Bill describes). Nor am I involved in any of the lawsuits. Nor will I accept any request to consult if asked in the future. I have no desire to get involved in the hard decisions law schools and universities must make going forward. Believe it or not (skeptical "anon" profs), I am raising these matters because I believe they are important.

Matt's assertions about Henderson's motives remind of a law professor who months ago repeatedly tried to discredit LST on the grounds that behind their transparency push was really just a desire to make money. Both instances attempt to discredit the speaker rather than the message. This is also a favorite tactic of the "anon" profs who repeatedly show up in these discussions to suggest that critics of legal education have all sorts of ulterior motives. That's easier, I suppose, than focusing on the numbers and responding on the merits of the arguments.

My view is that Matt should have stuck to the message, in the absence of stronger evidence on the motive (pace Paul).

Posted by: Brian Tamanaha | May 30, 2013 10:08:58 AM

If we are going to discuss economic incentives, what are the incentives of tenured faculty at a law school with lower than 5% placement in big firms, with a poor transparency score at LST, with 58% employment and a 1% federal clerkship rate, and with a non-discounted cost of $211,000? Does the faculty at such a school have any economic incentives? Or is it only the reformers and critics who have economic incentives?

Posted by: another anon | May 30, 2013 12:32:08 PM

Kyle touches on a point that I think is insufficiently appreciated: Law schools get their revenues from the university central administration, not from tuition. In the typical university, the typical unit (including the law school) hands over all of its tuition revenue to the central administration, and then is budgeted some amount of operating funds, though a negotiation process, corresponding to the amount of money that the administration decides the unit deserves or needs. That figure doesn't necessarily have a close connection to the amount of revenue the unit is bringing in. Historically, a lot of law schools used to bring in more money than they were budgeted to spend; other units brought in less money than they were budgeted to spend. Sometimes, universities really have closed down economically low-performing units or subunits; usually, they maintain them, because of the perceived value of those units on other axes (prestige, interdisciplinary potential, morale, avoiding bad publicity), because maintaining those units fits with the university's understanding of its larger mission, and because the university understands that axing a unit is pretty much a forever thing.

A lot of law schools are moving from being economically high-performing units to being economically low-performing units, with fewer students and lower effective tuition. That's bad for the law schools, but it's not really new in the higher ed world; universities have always had economically lower-performing components. The transition will likely be painful, because it means that universities will likely conclude that the law schools should get by with significantly smaller budgets. But for those law schools, the period we're entering into now is one of experimentation and negotiation associated with cost-cutting, not closure.

Posted by: J | May 30, 2013 12:53:19 PM

"That's bad for the law schools, but it's not really new in the higher ed world; universities have always had economically lower-performing components. The transition will likely be painful, because it means that universities will likely conclude that the law schools should get by with significantly smaller budgets. But for those law schools, the period we're entering into now is one of experimentation and negotiation associated with cost-cutting, not closure."

This is a decent point, but there are two big things to say here.

First, there are a number of stand-alone law schools. They don't have central university revenues to fall back on.

Second, law schools are fundamentally different from the loss-causing (usually) humanities departments in two interconnected ways. First, they don't have the same "necessary expenditure" status. Meaning, you need French and English professors because you can't really provide a passable liberal arts education without those subjects. So even if they English or modern languages departments do cost more than they bring in, they are necessary expenditures. Law schools aren't like that. A university -- especially non-flagship schools -- may come to the realization that they just don't need a law school in the same way they need an anthropology department.

The other main difference between law schools and the loss-causing departments is that law professors make a LOT more money. Humanities professors often make 60-70% of what the average faculty member makes, probably because they are seen as a necessary-but-undesirable expense. Law professors often make 60-70% more (because until now they were profit centers). So central administrations are going to have a lot more incentive to get those costs off the books.

Anyway, none of this is to say that some administrations (especially in flagship state schools, which generally will see their law schools as indispensable) won't just eat an unprofitable law school. But for many schools, the comparison to the political science department or the Spanish department is probably not a good one.

Posted by: Anon | May 30, 2013 1:17:39 PM

Many posts down the thread, now, there has yet to be any examination of the underlying premise that law schools must adjust to a shrinking "market" for lawyers rather than the other way around. As nearly everyone acknowledges (but somehow doesn't bring to the discussion of law school economics), there are not nearly *enough* lawyers to serve the many people-- natural and corporate-- who need them but can't afford them. Shrinking the pool of law graduates will clearly make access to justice even harder for this population. What could be done other than closing schools, shrinking faculties, etc.? Greatly increase public investment in legal services. One might or might not find that choice politically palatable, but its absence from the discussion silences an entire side of the ideological spectrum. In other words, Prof. Henderson's "descriptive" account, like this post, starts from axioms that have a profound, but unexamined and unacknowledged, political slant.

Posted by: Justin Long | May 30, 2013 1:42:30 PM

There already is too much public funding of legal work and mechanisms which indirectly fund attorneys, such as administrative proceedings which provide for plaintiff's attorney's fees.

Posted by: JR | May 30, 2013 1:51:48 PM

Justin, here's my predictions on that.

In the market for more sophisticated consumers of legal services, we will see more disaggregation of legal services, non-law-firm providers, and legal process vendors. They are a small part of the market but if you look at the slides Bill Henderson has pulled together, that segment is growing robustly.

At the bottom end of the market, states will be forced to create categories of law-workers who have not gotten the full-on, expensive, overdone, over-priced JD degree that will continue to be offered by the law schools that want to emulate the top 14 schools. We've seen some states head that way and others consider it.

There is a budding movement for a "civil Gideon" right, which might be supported by lots of public lawyers working at the county level on divorce, eviction, custody, and benefits issues. But given how poorly we're supporting the PDs who represent the accuseds, and given the tight budgets at the state and federal level, it's not clear to me that that path is possible or desirable. Anyway, fwiw, those are my predictions.

Posted by: John Steele | May 30, 2013 2:02:05 PM

"Shrinking the pool of law graduates will clearly make access to justice even harder for this population."

How so? If there isn't any money for the new grads to serve the population now, then eliminating those jobless new grads wouldn't seem to affect the access one iota.

And in any event, the notion that there aren't enough lawyers to serve people who need but can't afford legal services is an empirical claim that really needs to be supported. Don't get me wrong -- everyone (I think) agrees that there is a huge unmet legal need from would-be clients who don't have the money to pay lawyers. But that's a separate and distinct question from whether there are enough lawyers currently and/or in the pipeline to meet it. And on that latter question, I suspect there would be a great deal of disagreement.

Posted by: Anon | May 30, 2013 2:08:57 PM

I'd say it's too early to call Bill wrong. There is every indication that third and fourth tier institutions have experienced a substantial drop in applications. From anecdotes heard from colleagues at other area law schools, I'd say Bill's prediction on the timetable may be off, but not on the ultimate destination.

Posted by: Anon | May 30, 2013 2:16:10 PM

Justin Long raises a very important issue. If we were debating the reform of legal education a decade ago, there would have been many voices claiming that law students do not understand corporate finance and that the world needs many more practice-ready securitization attorneys. Henderson's claim regarding the changing nature of the legal services market is more far-ranging but presupposes that law schools should adapt to the rapid growth of nonattorney legal service providers (and corporate clients embrace thereof) and that the bar is relatively powerless to stop the rise of companies such as Axiom that do not operate under the ethical rules of traditional law firms and are arguably engaged in the unauthorized practice of law.

I appreciate that Prof. Henderson is not necessarily proposing a one size fits all model for legal education, but it is certainly fair for Prof. Bodie to point out that the attractiveness of his model is connected to just how dire the economic situation of most law schools appears to be and that Prof. Henderson's letter fails to make a strong claim on that score.

Posted by: Milan Markovic | May 30, 2013 2:52:31 PM

To go back to the original post, I think that what Prof. Bodie is observing is that Prof. Henderson is becoming or trying to become something of a public intellectual. In today's environment where people are looking for sound bites, to get his message across, Prof. Henderson has to limit the nuance of his message in order to get his audience's attention. One way of doing this is to make dire predictions that don't really stand up to scrutiny the way that Prof. Henderson's other emperical work might. I think that is what the good Prof. means when he points out he had only 1,000 words in the piece under discussion. He chose to write it the way he did for maximum effect. He could have been more nuanced, but then he would not have gotten as much attention. He wants you to pay attention to the general jist of the piece, not the fine print. In other words, he gains some capital from one group (general legal public) but maybe loses a bit in the other.

Henderson's analogy to Kodak seems apt in some ways - in that case law schools need to change their product and go from analogue to digital. Or it is that law schools are more like Samsung, which was able to turn itself around by a commitment to quality and great marketing but still is in the same basic space? Its much easier to diagnose the problem, it turns out, than to provide real solutions that are scalable and saleable. Not only because law professors are an entrenched group, but also because predicting is very hard, especially about the future.

So Prof. Henderson has made an empirical observation about the job market that is difficult to dispute. Whether his solution really moves the ball forward is the question I'd like to see discussed in greater detail in whatever forum. My experience after reading his Blueprint and looking at the work of some people he admires (like Renee Knake of ReInvent Law or the folks at RethinkLaw.org) is that there is a good deal of explaining why law schools and firms are in trouble (check) and some call for "innovation" (check) but not many actual propositions for change. To me, Henderson's proposal reads like how to make law students more attractive to firms. But firms are changing, and his own work demonstrates that many of the law students can't get jobs at firms. (This is why law school has to cost less, right?). What about these students? It doesn't make sense for law schools to groom students for a set of jobs that are dying out and that corporations don't want to pay associates to do anyway, even if the associates can do them much better than they used to from day 1. So what set of jobs are out there for law grads that schools should focus on? Compliance work at accounting firms?

Posted by: public intellectual | May 30, 2013 3:03:01 PM

Surrendering the field of small-business, middle-class, working-class, and poor clients to non-lawyers without serious challenge, which as far as I can tell has been Prof. Henderson's prediction, seems unwise for law schools even if it did not lead to massive injustice and the stifling of progressive legal change. I have no training in this area and have never written about it (let alone based a career on it), so I make no claim at all that my substantive comments are correct or even worthy of serious attention. Still, what I see across the legal academy is a massive and heated discussion about ways to cut supply without any discussion at all among the people who are experts in this field about ways to increase demand. Imagine if a private firm noticed declining sales and responded entirely by closing shops without ever discussing the possibility of improving its marketing? The silence about how to get increased state and federal funding for law schools and low-income attorneys, how to get states and counties to hire more and better-paid defenders, civil Gideon, etc. (any of which might or might not be politically possible, or might or might not be good ideas on their own) is so baffling that it becomes suspicious. Who gains and who loses from this silence?

Posted by: Justin Long | May 30, 2013 3:13:52 PM

Justin,

There have been lots of discussions about law workers, the justice gap, Civil Gideon, what contraction means for clients, what contraction means for lower socio-economic college students who might have thrived as lawyers, etc., at other law blogs.

Posted by: John Steele | May 30, 2013 4:12:47 PM

Justin,

There have been lots of discussions about law workers, the justice gap, Civil Gideon, what contraction means for clients, what contraction means for lower socio-economic college students who might have thrived as lawyers, etc., at other law blogs.

Posted by: John Steele | May 30, 2013 4:12:47 PM

I don't see how one could assert, without some evidence, that any alternate professional training path that does not look exactly like the status quo will necessarily lead to massive injustice and the stifling of progressive legal change.

Suppose that a state started licensing criminal barristers, who would be required to have a bachelors of law in criminal law from an accredited university. In addition to whatever distribution requirements the university had in place, the curriculum of which would consist of 8-10 classes in the department including: legal research & writing, criminal law, criminal procedure, constitutional law, evidence, court room advocacy, and professional responsibility. Such barristers would be subject to a strict code of ethics and subject to discipline. However, unlike attorneys they would only be able to practice criminal law.

How can you be so certain they would do a terrible job for their clients?

Posted by: brad | May 30, 2013 4:23:57 PM

It's easy, Brad. The quicker, cheaper alternatives to practicing law will further plummet the demand to go to law school. Academia is not interested in destroying demand for it. For that matter, neither are licensed attorneys interested in opening the flood gates to competition.

The problem with so many of academia's proposals/ideas is that cheapening the cost of entry into the market harms both alumni and the schools. If they were smart, they'd see this was obvious. Instead of looking at alternatives to maintain quantity by lowering costs, they need to increase the cost of law school and decrease the number of graduates.

This is hard to accept given the declining demand in terms of applicants. But as in all cases, the lemmings buy high and sell low. Fear drives bad decisions.

Posted by: Jeff Matthews | May 30, 2013 10:35:50 PM

Justin Long-

What are you surrendering? Hear tell, nobody is serving those "small-business, middle-class, working-class, and poor clients" at all. So you'd be giving people with no medical assistance nurse practitioners, not removing any lawyers from the market.

Let's say that the only thing standing in the way of an increase in services to small-businesses or middle-class, working-class, and poor people is student debt loads. Someone with 150K in debt cannot make the investment of time or capital necessary to build a practice. Would you then be in favor of the federal government capping law school tuition at, say $10,000 per year, and using the money they would be loaning to law students to expand legal aid services?

Posted by: BoredJD | May 31, 2013 8:21:47 AM

Even when tuition was lower in the 1970s, studies and articles observed that the middle class and poor lacked access to lawyers. There is no proof that lower tuition would propel large numbers of lawyers into what many young people deride as "s**t law".

Posted by: CHS | May 31, 2013 10:33:22 AM

That's right, CHS. When being a "Mother Teresa" comes with a handsome paycheck, people will want to be "Mother Teresas." It is galling to hear some profs and quasi-political hacks (bar presidents) prophesize about "all that's wrong" by not assigning scads of lawyers to do undesirable work. If they see the "value" in it, then by gosh, let them be the first to serve the cause.

Posted by: Jeff Matthews | May 31, 2013 11:54:29 AM

Perhaps it's because I'm a bankruptcy lawyer, but I'm perplexed by the suggestion that lots of law schools will close and that they will close in the next year (or three). I'm not sure who gets to make the decision to close a law school, but I cannot imagine many of them taking a look around and saying, we should close because (i) demand is shrinking, our bar passage rate stinks, etc. and (ii) these are unlikely to get better in the near term. That isn't what happens in other industries. In other industries, people hold out hope that the market will turn, a white knight will save them, next quarter will be better, etc.

Instead of following Bill Henderson's suggestion (as digested by Matt Bodie), I suspect that most are looking around at their competitors and are thinking, if we can hold out for just one more year that them, then we'll get most of their students and that'll shore up our finances. In addition, I expect that law schools will draw down their endowments, look to affiliated universities (if any) to help carry them for a bit, fundraise more aggressively, offer more LLMs, mortgage real estate assets, cut faculty salaries, cut faculty where they can and buy-out faculty where they must, etc. In short, I suspect that they will do most anything to avoid going under in the hope that their competitors will go under first and that this, plus hoped-for improvement in the amount of students interested in going to law school in the future, will be sufficient to carry them through these rough times. Only after all other options are exhausted, faculty payroll is about to come due and cannot be met (or something similar), will law schools actually start closing.

If you don't think this is true, then I'm curious to know why you think that law schools are any different than airlines, car companies, etc.?

Posted by: Bankruptcy lawyer | May 31, 2013 1:28:04 PM

@Bankruptcy lawyer--The issues you raise are why some assert that the predictions reflect more wishful thinking than truly considered judgments

Posted by: CHS | May 31, 2013 2:28:16 PM

Bankruptcy- I think the theory is that law schools are like unprofitable airline routes, divisions, factories, or car models, and that their "parent company" the university will step in and close the unprofitable operation. But you're right that the parent company will consider all the things you listed as a way to maintain their revenue from the law school before closing it.

Posted by: BoredJD | May 31, 2013 2:36:48 PM

Bankruptcy- I think the theory is that law schools are like unprofitable airline routes, divisions, factories, or car models, and that their "parent company" the university will step in and close the unprofitable operation. But you're right that the parent company will consider all the things you listed as a way to maintain their revenue from the law school before closing it.

Posted by: BoredJD | May 31, 2013 2:36:49 PM

Without access to schools' financials, putting a timetable for closures would seem--at the very least--extremely difficult.

Posted by: CHS | May 31, 2013 2:58:38 PM

@BoredJD - That's an interesting theory, but it seems to me that it supposes that the "parent company"/university will look at their law school and think, "Law School, you're a loser. And not only are you a loser, but you're the biggest loser. No other area school is more likely to close than us. In addition, the current decline in applicants is taking us toward a 'new normal.' As a result, I can see no reasonable prospect that the law school is going to be profitable in the medium or long-term and so law school, I close you." I'm not a psychologist, but that sort of steely-eyed self-assessment seems rare. And not only does it seem (to me) to be rare, but it's hard to be sure you are correct when the law school administration is telling you that things will get better, which their own self interests suggests that they will want to believe.

Posted by: Bankruptcy lawyer | May 31, 2013 3:03:54 PM

Bankruptcy lawyer --

One thing that complicates the "parent company" analysis is that there often is some friction between the law school and the central university. Law professors often make double or more of what the non-professional school professors make, and there's always some skepticism that they're not "real" academics because they don't have PhDs (though this last bit is changing). So you've got a situation where the (perceived) less qualified faculty members are making a lot more money. The central university might be less likely to subsdize the law school for an extended period of time under those circumstances.

All of that said, I do think that it's unlikely that the vast majority of law schools would be at risk of outright closure provided the faculty members were willing to take steep salary reductions. I'm just not 100% certain that under the right circumstances -- say a faculty with a bimodal distribution between older professors (who are OK with retirement) and younger superstars (who think they can land on their feet) -- a faculty wouldn't tell the central university to go suck an egg when it comes looking for 30% pay cuts.

Posted by: Anon | May 31, 2013 4:39:37 PM

@Bankruptcy lawyer:

When a law school that formerly provided resources to other programs at a university is now asking for resources from other programs to stay open itself, I don't think that "steely-eyed self-assessment" is too long in coming, if only because other competitors for those resources in the university ecosystem will force the issue.

Posted by: Morse Code for J | Jun 1, 2013 7:08:22 AM

How did law schools make it back in 1993 when tuition was $7,500 per year? This is how they'll make it as demand drops off. I don't sense catastrophe. I sense a new norm where some fat and luxury are trimmed.

Posted by: Jeff Matthews | Jun 1, 2013 1:41:04 PM

@Morse Code - I think your comment brings us full circle to the OPs point. Without knowing the individual financial details of each school (e.g., how much revenue was the law school providing to the attached university), we cannot really know how likely schools are to close.

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